Investors divided on timing of purchase

Workers pour concrete at a construction site in Kuala Lumpur. Some experts believe property prices are determined by demand and not by raw material prices – Reuters

With inflation expected to have surged to 6% in June from 3.8% in May and looming recession, investors are unsure whether to enter the property market.

S.K. Brothers Realty (M) Sdn Bhd chief executive officer Charlie Chan said political concerns, high cost of living and rising inflation were affecting the real estate sector.

“Investors and purchasers are divided over what is the right thing to do. Some people believe that the time is right to buy for fear that prices will escalate further while some feel that now is the right time to sell,” he said.

Chan said while there were still a lot of uncertainties, he was optimistic that property in the RM150,000 to RM400,000 bracket would still experience brisk sales.

“Transactions within the Kuala Lumpur city centre should remain steady and relatively unaffected,” he said, adding that due to the fuel price hike, people were more likely to buy property that was either within or close to the city.

“We see an increase in demand for property closest to the city as transportation cost has become an issue after the oil price increase and more people will be looking to live closer to their workplace,” he said.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz had said last week that she expected inflation to hit 6% in June following the increases in fuel prices and that domestic inflation was expected to rise until early next year.

She had said the inflationary pressure was also following the increase in electricity tariffs from July 1, with tariffs up to 18% for households and an average of 26% for some commercial and industry users.

DTZ Nawawi Tie Leung Sdn Bhd investment executive director Brian Koh believes sentiment towards the property sector is generally negative and properties costing below RM250,000 would be most affected.

He said those planning to buy houses below RM250,000 might hesitate as their household income had shrunk due to high food and fuel prices.

Reapfield Properties Sdn Bhd president David Ong did not foresee a drastic fall in property transactions, as there would always be some people who would still buy while others might remain cautious.

“Property is one of the best investments in time of inflation. Any time is a good time to buy,” he said.

According to Ong, the high cost of living would impact property within the low-end and medium-end range.

However, sales of high-end properties should continue to remain stable as the wealthier investors were unaffected by the high cost of living, especially with the recent fuel price hike.

Ong said there were also “pros and cons” on purchasing residential properties within the city as it might help to minimise transportation cost but properties in such locations were also too expensive for the average city worker.

On property prices, PPC International Sdn Bhd executive director Thiruselvam Arumugam said they were determined by demand and not by raw material prices.

“Transactions are slowing down because of the cautious approach by investors and buyers. Developers can increase the property prices but the demand will just not be there.

“This will result in an overhang and eventually, prices will have to come down,” he said.

On the market outlook, Thiruselvam said the industrial and manufacturing sectors would be most affected whereas the commercial and residential sectors were still in good demand despite the current situation.

Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng said as a result of weaker market conditions, the take-up rate for homes could drop in 2008 as buyers took a more cautious stance.

“Confidence in the economic climate is vital for a buoyant property market. People will buy property if they see that there is room for capital appreciation,” he said, adding that investors and purchasers were more likely to invest in established locations where demand was strong.

“Popular and prime locations like Bangsar, Damansara Heights, Mont Kiara, Bandar Utama and Mutiara Damansara will continue to receive strong interests as investors can still enjoy decent yields while waiting for the market to improve.”

By The Star (by Angie Ng and Eugene Mahalingam)